Regulators who claimed the European accounting model was impervious to an Enron-style corporate scandal must think again in light of the Parmalat debacle and the resignation of the chairman of Grant Thornton SpA, auditors of the food giant until 1999.
While the full scale of the financial wrongdoings are yet to be determined, a black hole in the company’s accounts of between €10bn and €13bn seems a reasonable estimate. It could, however, escalate beyond those already mind-boggling figures.
The news first broke on 19 December when the Bank of America said that a document claiming the existence of €3.95bn in an account held by Bonlat, a subsidiary of Parmalat, was false. The document is alleged to have been forged on a simple consumer-style computer scanner.
This begs the question of the role of its auditor, Grant Thornton SpA, which acted for Parmalat until 1999. The firm was quick to distance itself from the scandal claiming it was itself a victim of fraud. It was also at pains to point out that its international framework means that individual country practices are separate legal entities to the mother ship.
But on New Years Eve Grant Thornton SpA accepted the resignation of Lorenzo Penca, the Italian member firm’s chairman, who was under arrest at the time. Maurizio Bianchi, a partner with the group was also arrested and suspended from all responsibilities with the firm.
The two men joined Luciano Del Soldato, Parmalat’s group finance director, and Fausto Tonna, director general, both of whom were named by Calisto Tanzi, the company’s founder who was himself arrested, as those allegedly responsible for dreaming up the schemes that would hide the group’s huge losses.
A statement issued by Grant Thornton International said it was ‘continuing, with the involvement of legal counsel, its investigation into the Parmalat matter and its review of Grant Thornton SpA’.
But Big Four firm, Deloitte, may also be dragged into the affair after taking over from Grant Thornton on 31 December 1999. And although Grant Thornton retained Bonlat as its client, three and a half years is a long time for what the US Securities and Exchange Commission described as ‘one of the largest and most brazen corporate financial frauds in history’ to go undetected.
A spokesperson for Deloitte said the firm is ‘monitoring the situation very closely’ and that it believes it acted properly throughout and in accordance to the relevant standards. ‘Clearly we have procedures in place when we discover a problem with clients financial information,’ the spokesperson said.
Part of those procedures will be to co-operate with any independent investigations taking place. ‘We will co-oporate with both regulators and any investigations as they go on’, the firm said.
Deloitte claims that a report published on 31 October highlighted some potential problems at Parmalat.
PricewaterhouseCoopers, has been commissioned by Parmalat’s new acting chief, Enrico Bondi, to ‘review the financial assets and liabilities of the Parmalat Group, including derivative contracts and commitments, and particularly those of its financial subsidiaries’.
A spokesman for PwC was unable to confirm when the report is likely to be published.
To unravel the intricacies and true extent of the alleged fraud is Bondi’s responsibility, an Italian turnaround specialist who arrived just as the debacle began to emerge.
An extraordinary shareholding meeting of Parmalat SpA held on the 23 December, the company filed for admission to the extraordinary administration procedure (EAP). It was officially placed into EAP on Christmas Eve and Calisto Tanzi was arrested for questioning three days later.
On 30 December the company issued a press release stating that the entire group had been placed under EAP.
Bondi is reported to have 180 days to try and find a solution for Parmalat – an organisation with 30,000 employees in 30 countries, and many more investors, who rely on it for their financial well-being.